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* $286.1 million (31 December 2017: $247.3 million) relates to the Group’s pre-sold development properties as at 30 September 2018.
(i) Operating Segments
(ii) Geographical segments
The Group achieved revenue of $102.0 million in 9M2018, 50% lower than $203.5 million in 9M2017. For 3Q2018, the Group achieved revenue of $18.8 million, 69% lower than $60.3 million in 3Q2017. This was mainly due to lower revenue from the Property Development and Property Investment segments, partially offset by higher revenue from Hotel Ownership segment.
(a) Property Development
Revenue from the Property Development segment, which made up 58% of the Group’s turnover in 9M2018, decreased 64% to $58.8 million in 9M2018 from $162.0 million in 9M2017. For 3Q2018, revenue from Property Development segment made up 26% of Group’s turnover, decreased 90% to $4.8 million in 3Q2018 from $46.5 million in 3Q2017. The decrease was largely due to lower revenue recognition from Trilive, which obtained its TOP in June 2018 and absence of revenue recognition from Jade Residences, Whitehaven and LIV on Wilkie following the completion of these projects in 2017. The decrease was partially offset by higher revenue recognition on construction progress and sales of The Navian and Straits Mansions. Although the Group has made good progress in the sales and construction of its projects in Australia, unlike in Singapore and Malaysia, it cannot progressively recognise the revenue as the completed contract method in accounting is adopted for these projects.
(b) Hotel Ownership and Property Investment
The Hotel Ownership segment, which contributed 36% to the Group’s turnover in 9M2018, registered $37.2 million in revenue as compared to $32.3 million in 9M2017. For 3Q2018, Hotel Ownership segment contributed 64% to the Group’s turnover, registered $12.0 million in revenue as compared to $10.9 million in 3Q2017. The increase was mainly due to contribution from Noku Osaka which was acquired in October 2017 and higher revenue from Noku Maldives after its full operation in August 2018.
Revenue from the Property Investment segment constituted the balance of 6% of the Group’s turnover and contributed $6.0 million in 9M2018 as compared to $9.2 million in 9M2017. For 3Q2018, revenue from Property Investment segment contributed $1.9 million as compared to $2.9 million in 3Q2017. The decrease was mainly due to the sale of 59 Goulburn Street in October 2017, partially offset by revenue generated from NZI Centre which was acquired in December 2017.
(ii) Cost of sales and gross profit
In line with the decrease in revenue, cost of sales decreased by 58% to $65.4 million in 9M2018 from $155.9 million in 9M2017. In 3Q2018, cost of sales decreased by 81% to $8.1 million from $42.7 million in 3Q2017.
Gross profit from the Property Development segment contributed $13.8 million or 38% of the Group’s total gross profit in 9M2018, while the remaining 62% or $22.9 million was contributed by the Hotel Ownership and Property Investment segments. Gross profit margin from the Property Development segment was 23% in 9M2018, as compared to 15% in 9M2017 mainly due to higher profit margin from Straits Mansions and The Navian. The gross profit margin of the Hotel Ownership segment decreased 4 percentage points to 50% in 9M2018 mainly due to lower RevPar from GMRH.
In 3Q2018, gross profit from the Property Development segment contributed $3.4 million or 32% of the Group’s total gross profit, with the remaining 68% or $7.3 million contributed by the Hotel Ownership and Property Investment segments. Gross profit margin from the Property Development segment was 70% in 3Q2018, as compared to 21% in 3Q2017 mainly due to higher profit margin from Straits Mansions, The Navian and adjustment of over-provision of projects cost. Excluding the adjustment for over-provision of project cost and annulled unit, gross profit margin in 3Q2018 was 29%. The gross profit margin of the Hotel Ownership segment decreased 5 percentage points to 48% in 3Q2018 as compared to 53% in 3Q2017 mainly due to lower RevPar from Noku Osaka in 3Q2018 due to cancellation of room reservation due to the Typhoon. Gross profit margin of the Property Investment segment increased 7 percentage points to 77% in 3Q2018 from 70% in 3Q2017 due to adjustment of 2017 cost on 59 Goulburn Street in 3Q2018.
The Group’s overall gross profit margin in 9M2018 was 36%, higher than the 23% recorded in 9M2017 mainly due to higher contribution from Hotel Ownership segment which has a higher profit margin. For 3Q2018, the Group’s overall gross profit margin was 57%, compared with 29% in 3Q2017.
Advance estimates from the Ministry of Trade and Industry showed that Singapore’s economy grew by 2.6 per cent year-on-year in the third quarter of 2018, moderating from the 4.1% growth in the previous quarter. On a quarter-on-quarter, seasonally-adjusted annualised basis, the economy expanded by 4.7%, faster than the 1.2% growth in the preceding quarter 1.
In Australia, the economy expanded 0.9% quarter-on-quarter on a seasonally adjusted basis in 2Q2018, while GDP grew 3.4% year-on-year during the quarter2 , in line with the 3.25% forecast for the year ending December 2018 by the Reserve Bank of Australia3.
Revised Cabinet office data showed Japan’s economy grew an annualised 3.0% between April to June 2018, contrasting 1Q2018’s revised 0.9% contraction4.
Data from the Urban Redevelopment Authority (“URA”) showed a 0.5% increase in the private residential property index in 3Q2018, compared to the 3.4% increase in 2Q20185 . This marks the fifth consecutive quarter of price increase and leaves the URA’s overall private residential price index at just 3.2% below its last peak of 3Q2013 and 9.6% above the last trough of 2Q2017.
In September, the Singapore High Court has granted an order for the collective sale of freehold residential property, The Wilshire, in which the Group has a 40% stake. The Group will continue exercise prudence in new site acquisitions as well as closely monitor market conditions for its planned upcoming property launches.
Australia’s price index for residential properties for the weighted average of eight capital cities fell 0.7% in the June quarter 2018, and was down 0.6% on a year-on-year basis6.
Residential prices in Sydney fell 3.9% on a year-on-year basis. The Australian Bureau of Statistics said although decreased demand for homes and a tightening of lending to investors played a role in the falls, they were not significant in the bigger picture7.
The Group’s residential development projects in Sydney have sold well – The Hensley and Octavia are only left with two units and one unit for sale respectively, while West End Glebe that was launched in two phases is currently overall 85% sold.
Pre-sales for the New World Towers project in Brisbane, in which the Group has 40% stake, have been stagnant after achieving 122 units sales during the phase one launch. Given the existing weak residential market fundamentals in Brisbane, the joint venture parties are currently reviewing the various options for the 435-units project which includes delaying its subsequent launches. On prudence, the Group has not included the units pre-sold for this project in the pre-sale revenue table as disclosed in the following page.
As at 22 October 2018, based on units sold from the following ongoing development projects, the Group has total attributable pre-sale revenue of $593.0 million, the profits of which will be recognised from 4Q2018 to FY2021
In addition, the Group has the following development land bank in Singapore:
The Group currently has seven development sites in Singapore as its land bank, of which it plans to launch one development site for sale in 4Q2018 and another three development sites in 1Q2019.
In Australia, the Group has entered into an agreement to acquire a property in New South Wales, which comprises a mix of warehouse and office space; the property is located at Mavis Street in Revesby. This marks the Group’s foray into Australian industrial investment, which the Group plans to develop light-industrial warehouses and self-storage units.
Latest statistics from the Singapore Tourism Board (“STB”) showed a 7.46% year-on-year growth in international visitor arrivals for the first eight months of 20188. Hotel statistics also showed a positive growth – average occupancy rate grew 1.7% year-on-year through August, total room revenue jumped 8.8%, average room rates increased 1.8% while revenue per available room rose 3.5%9.
Data from the STB also showed tourism receipts remained steady in the first quarter of 2018 at S$6.7 billion10. For 2018, STB forecasted tourism receipts to be in the range of $27.1 to $27.6 billion, an increase of 1% to 3%, while international visitor arrivals is expected to be in the range of 17.6 to 18.1 million, an increase of 1% to 4%.11
According to the Japan National Tourism Organisation, the estimated number of international travelers to Japan in August 2018 was about 2.6 million, an increase of +4.1% from the previous year, and for the year through August, visitor arrivals were 21.3 million, which was up 12.6% from the same period a year ago12.
The Group’s flagship Grand Mercure Singapore Roxy hotel, and self-managed boutique hotels in Japan – Noku Kyoto and Noku Osaka – continue to contribute healthy recurring income while its resort in Maldives, Noku Maldives, which commenced operations in December 2017, has received warm reception since its soft opening. It has been in full operation from August 2018, while its counterpart in Phuket is targeted to open in 2019/2020.
In 2Q2018, overall sentiment in commercial property markets, as measured by the NAB Commercial Property Index fell 4 points to 17, but has remained above its long-term average of 3 points13.
The National Australia Bank said, however, that confidence in office markets was little changed with the sector continuing to benefit from strong demand in key states and nascent signs of recovery in previously under-performing states. The office property market is also expected to lead the way for capital and rental growth in the next 1-2 years13.
June 2018 was a record year for office property in New Zealand with NZ$2.7 billion worth of office buildings sold in the year14. Prime office space rentals in Auckland averaged NZ$478 sqm, 2.5% higher than a year before while average capital values per sqm are NZ$7,606, a 6.6% year-on-year increase14. According to Colliers International, positive fundamentals such as strong population, employment growth, and investment in infrastructure, coupled with positive economic performance continues to contribute to Auckland’s attractiveness14.
The sale of the Grade A commercial building at 117 Clarence Street in Sydney was completed on 17 August 2018, and has contributed positively to Roxy-Pacific’s financial performance in the financial year ending December 31, 2018. The Group intends to continue to grow its presence and investment portfolio in Australia.
Barring any unforeseen circumstances, the directors expect the Group to be profitable in the financial year ending 31 December 2018.
1 Ministry of Trade and Industry Singapore, October 12, 2018 – Singapore’s GDP Grew by 2.6 Per Cent in the Third Quarter of 2018
2 Australian Bureau of Statistics, June 2018 – Australian National Accounts: National Income, Expenditure and Product, Jun 2018
3 Australian Bureau of Statistics, June 2018 – Australian National Accounts: National Income, Expenditure and Product, Jun 2018
4 Economic and Social Research Institute, Sep 10, 2018 – Quarterly Estimates of GDP for April - June 2018 (Second Preliminary Estimates)
5 Urban Redevelopment Authority, October 26, 2018 – URA releases real estate statistics for 3rd Quarter 2018
6 Australian Bureau of Statistics, June 2018 - Residential Property Price Indexes: Eight Capital Cities
7 The Guardian, September 18, 2018 – Australian house values fall by $13bn in three months as capital city prices slide
8 Singapore Tourism Board, September 28, 2018 – International Visitor Arrivals Statistics
9 Singapore Tourism Board, September 28, 2018 – Hotel Statistics 2018
10 Singapore Tourism Board, August 24, 2018 – Tourism Sector Performance
11 Business Times, August 25, 2018 – H1 visitor arrivals to Singapore grow by more than 7 per cent
12 Japan National Tourism Organisation, October, 2018 – Japan Tourism Statistics
13 Australia National Bank, July 25, 2018 – NAB Quarterly Australian Commercial Property Survey Q2 2018
14 Colliers Capital Markets Investment Review 2017-18